Craft beer cheaper without 3 tier system?

Somebody has to distribute the stuff. And, you are mistaken if you think the retail price of craft beer is a cost+ equation.

There is even an argument to be made that the 3 tier system protects the smaller brewer from the mega brewers buying up all of the distributors.

 

Unless the distribution is entirely local it would probably be more expensive owing to reduction in economies of scale.

E.g., A distributor can spread out the cost of storage facilities and maintaining a fleet of trucks when handing multiple accounts more easily than can a single brewery.

 

Whenever there is a level of handling in between producer and consumer, and that in-between person is making a profit, then there is going to be higher cost of the product. The producer (brewer) in some states is permitted to self-distribute in an attempt to give them a larger profit margin until they get large enough to enjoy some of the economy of scale, but I have to believe that these small breweries have a difficult time with the expenses of distributing, thus they really don't enjoy any of the 'extra' profit from being able to charge a wholesale price to the retailer.

 

There would be a huge cluster F if the flawed distribution system that now operates was dismantled. The USA is like 50 countries and any simplistic thinking about the distribution of highly regulated alcohol products is not advisable in my opinion.

 

Think of the 3 tier system the same way illegal drugs are sold. Everybody who handles the stuff takes their cut. The main difference is that with the 3 tier system each handler can't dilute the product with a foreign subject.

 

Umm......AB-InBev has been buying up distributors.

They are buying craft breweries in strategic areas and buying distributors where they are allowed to own their own wholesale operations. Where they are not allowed to own distributors they are providing an incentive program. Those incentives make it very attractive for distributors to push AB-InBev owned craft beer. Expect to see more beers from Golden Road, 10 Barrel, Blue Point, Elysian, 4 Peaks, and Breckenridge taking over more shelf space in the coming year(in the same manner as Goose Island has).

http://www.reuters.com/article/us-abinbev-doj-antitrust-exclusive-idUSKCN0S623R20151012
http://www.bizjournals.com/stlouis/...e-department-investigating-a-b-inbev-for.html
http://www.wsj.com/articles/craft-brewers-take-issue-with-ab-inbev-distribution-plan-1449227668
http://anheuser-busch.com/index.php/our-company/operations/wholesale-operations/
http://www.persimmonhollowbrewing.c...rs-distributors-and-youthings-you-should-know

 

Self-distributed beer (in markets where legal) is typically priced the same, or more, as the beers that are distributed by wholesalers. Whatever savings that might exist by eliminating the middle tier are probably more than offset by the less efficient distribution costs (one truck delivering small orders vs those small orders being delivered in larger trucks with other brewers' beers).

 

Ummm... I know that. But not in states with the 3 tier system in place. And incentives are a different issue from ownership.

 

With the exception of Washington, every single state has a 3-tier system.

 

Even with the laws and the 3 tier system being different from state to state there are still very few states where ABInBev can own distributorships. For example Florida does not allow the brewery to own a distributorship.

 

Actually, GA has some of the highest beer taxes in the entire country. That is mostly why you are paying more for your beer - you're the 4th most expensive state in the country for beer.

 

Depends on how you define it, doesn't it? A key component is that all three "tiers" must be independent businesses. Clearly, that is not the case in all states since AB does own some distributors, reducing it to a 2 tier system.

 

Correct, but this is where the incentives come in. I have some close friends who work for the local distributor and they have been pushing GI hard since last years NBWA meeting. Florida saw a huge amount of BCBS and variants this year as a result of their hardwork.

Absolutely. However, I'm willing to bet AB-InBev (as well as Stone) sees their distribution businesses as separate from their brewing business. Just because they own both does not mean they are not separate entities. I understand the argument of protecting smaller brewers but if bigger brewers can still "lobby" and "grease" distributors then that defeats the purpose of the division.

 

Without examinng the corporate structure, I do agree that it is certain they are managed as independent businesses, just as I am sure that one of the performance measuremets for the distributors is increasing the sales, shelf space, bar taps, etc., of AB brands.

 

I'm not an economist either, but it stands that the more people in line between you and the brewery the higher the cost in general. Not an absolute though, I can buy beer from a brewery for the same cost as from my retailer. What's the difference? They set a retail price and hold to it, they make a higher profit because they're the brewery, and are not paying a middle man. They no doubt reduce their price to retailers to distribute , who then sell it at the brewery price, they make less per sale, but they get volume sales for their trouble.

 

Yes, and that is why lowering the cost will not likely lower the price. It will increase the margin. The market price for craft beer is well-established. It is highly unlikely (IMO) for reduced costs to do anything at all to price. It will instead result in increased margins (for someone)... at least in the near term. It is this high margin that is attractive to AB, so they are unlikely to rock the boat on price, either.

 

LOL that's a vulgar generalization but basically true.

 

That's not true. PA does not have a three-tier system. The liquor stores are owned by and run by the state government. Want to buy liquor? Go to a government owned store. Only stores that sell food, loosely known as "delis," are able to sell craft beer. And when they do, they can only sell it 192 oz at a time. So I can buy 10,000oz of craft beer if I want to, but only at 192oz per monetary transaction. And don't confuse a deli with a distributor here. In PA, a distributor is considered any business that sells beer by the case. In most states a distributor is a multi-million dollar enterprise specializing in the distribution of various alcoholic and perhaps non-alcoholic beverages. Not so here. PA has incredibly backwards beer laws. As a consequence PA citizens not only pay a higher price for spirits but also suffer from lack of product diversity.

As an economist and someone who has worked in the three-tier system in three states, it's easily the best system for the distribution of alcoholic beverages. Everyone profits. Suppliers, distributors, and the state. And the consumer saves money. And has more choices.

EDIT: To be fair and accurate, I think the Philadelphia-metro market operates differently. I think Southern Wine and Spirits has a presence there. Maybe someone from Philly can clarify.

 

I can't see why getting rid of the 3 Tier system would hurt PA around Pittsburgh our distribution sucks sometimes with product sitting on shelves for years and grossly overpriced. Can't see it getting any worse.

Edit: Had no idea we didn't have one we need to get one ASAP!